Google infringes old Lycos patents, must pay $30 million

Slides show how Vringo's lawyers made a winning case; but they wanted $493 million.

Vringo is a little company that's made a huge bet on suing Google over patents. Today that bet paid off, although to a much lesser degree than its investors hoped earlier. After a two-week trial in Virginia, a jury found that Google's advertising system infringes two old Lycos patents purchased by Vringo in 2011, and that those patents are valid.

Google and several of its advertising partners were ordered to pay a total of about $30 million. That's a lot of money, but far less than the $493 million Vringo was seeking. According to a report just published in the Virginian-Pilot, the jury found that Google will have to pay $15.9 million. Its advertising partners must pay smaller amounts: $7.9 million in damages for AOL, $6.6 million for IAC Search & Media, $98,800 for Target, and $4,000 for Gannett. The jury also said Google should pay an ongoing royalty; but whether that ultimately sticks is up to the judge.

The Vringo case is remarkable for two reasons: first, it's rare to see a high-profile patent attack played out directly in the stock market, with investors speculating on each move in court. Second, demonstratives submitted in Vringo's case show a fascinating story in pictures of how a company that's more or less a "patent troll" tries to convince a jury to shower it with money. Some of those visuals are posted below.

Aside from patents, there isn't much to Vringo's business. That's why its stock price has been so reactive to court developments. It has a "video ringtone" operation with thousands of customers, mostly abroad. That has seen little success, though, and Vringo has hemorrhaged cash for years. In a last-ditch shot at success, Vringo bought two patents, Nos. 6,314,420 and 6,775,664, that originated at Lycos, an early search competitor. It set those patents up in a shell company called I/P Engine and sued Google last year.

Vringo quickly got a high profile. Investors like Mark Cuban helped, as did some loud articles in the tech press. That particular piece, written by Vringo investor James Altucher, was headlined "Why Google Might Be Going to $0." Altucher pumped up Andrew Lang, the inventor on the Lycos/Vringo patents, and suggested they could be worth $80 million.

The jury certainly didn't agree with that analysis. However, Vringo is now in a position to go after other websites that use Google advertisements. Since the beginning of the trial, Vringo stock (NYSE:VRNG) has shot up, then plummeted, and jumped back again. Trading was halted this morning for a few hours following the verdict. It's now resumed and is hovering around $3.60 per share, slightly below where it was before the verdict.

Winning the Case: The Constitution, SmartASS, and the 51%

Several demonstratives used in court have been submitted into evidence. Combined with courthouse accounts, the pictures weave a fascinating, though partial, picture of how Vringo is made its case to the jury. These slides were presented during Vringo's opening arguments and various expert witness testimony. Google has objected to all of them (which is why they are in the public record.)

First of all, they let the jury know where patents come from—why, the Constitution, of course! It was none other than the founding fathers, pictured in this slide, who wanted patents to flourish on a new continent. Vringo showed this one-off during opening statements.

(Side note: Is it just me, or does the picture showing off the "IP Clause" of the Constitution look like it's carved in a stone tablet?)

The patents describe using a combination of "content" and "collaboration" to produce better ads online. The plaintiff says Google's system of advertising, called SmartASS (for SmartAdServingSystem), infringes those patents.

The "content" side of the technology basically means picking ads relevant to a search term; the "collaboration" side means things like measuring how many users actually click on the ads. Google uses that as part of its algorithm-driven auction that instantly determines ad placement. This slide shows how Vringo believes Google is using its patented system.

It had never been done before, argued Vringo lawyers. Examiners carefully reviewed those Vringo patents, saw the prior art, and granted away, as shown in the above slide. Google's lawyers displayed additional prior art during trial, but the jury was obviously unconvinced.

Google got crazy rich using the smarter advertising system—the system described by the Lycos patents, which are now Vringo's "property." Advertising revenue went up 20 percent. Vringo lawyers showed off internal Google documents celebrated the better advertising system, like the one above.

Asking for $493 million might seem like a lot of money, but Vringo surely emphasized how it only wants a tiny, tiny slice of Google's money. They were only asking for a 3.5 percent royalty on that extra 20 percent of revenue that came from the smart ads. Why, the slice of Google's cash-pile that they wanted was so modest, you'd have to use a magnifying glass to see it—which they helpfully provided in the above slide.

Finally, Vringo's lawyers emphasized a point that virtually all patent plaintiffs hit hard: the standard of proof is a mere "preponderance of the evidence," meaning they just have to show it's more likely that the defendant infringes than not infringe. That's higher than the defendant's burden to show invalidity of the patents, which is "clear and convincing evidence." Vringo used the metaphor of a scale tipping ever-so-slightly over to their slide to show how easy it is to find infringement.

Vringo's payday curtailed by judge's mid-trial order

Soon Vringo stock will resume trading, and we'll see how the market reacts to this patent win. Some starry-eyed investors believed that Google might end up paying out $1 billion or more, combining the $493 million damage demand laid out at opening with the ongoing royalty they believed would be tacked on to that sum.

That obviously isn't going to happen. In the middle of trial, US District Judge Raymond Jackson issued a ruling that foreclosed the most heated of those billion-dollar dreams, putting a strict cap on Vringo's ultimate payday. He limited the company to receiving damages only from the day it had filed the lawsuit in 2011. Originally, Vringo had wanted damages back to 2005. The stock price hit a nadir of $1.91 per share on the afternoon of October 31, shortly after Jackson's ruling. (It rebounded to around $4 per share after the jury deliberations dragged on to a third day.)

The jury wasn't convinced Vringo's patents were worth anywhere near a half-billion dollars, either. Dan Ravicher, a patent law professor and investor who has followed the case, said that Vringo's arguments just weren't that compelling. (Ravicher took a short position in Vringo stock mid-trial; in other words, he has bet that Vringo's stock price will drop.)

"[Vringo] plaintiffs aren't sympathetic enough to justify the damages award they were seeking of $493 million," Ravicher wrote on November 1, as the jury began deliberations. "There wasn't, in my opinion, a compelling enough story told about how they were unquestionably mistreated by the larger defendants. There was no evidence, for example, that Google tricked them into revealing their secrets and then took those secrets and implemented them on their own. To the contrary, Google was able to tell its story of how it came up with its advertising systems without knowing about the patented ones."

"using a combination of "content" and "collaboration" to produce better ads online"

are same - I mean ditto - in algorithm as well as in raw code - then this is just an idea - and an idea cannot be patented. Google should appeal this court's decision, and also disseminate the differences in their implementation to the jury the next time this comes up in court. Also, challenge those patents validity.

This case smacks of some more jury swaying rather than looking into points of law and technology, just like the Samsung/Apple case, where a discernibly biased jury with no understanding of what jury duty and decision-making entails sat in the court house.

Edit: Also why was Lycos not defending its patents (which should be invalid in the first case) when Google started its business ... its been online for 15 years.

Can you imagine what would happen if Google sued Microsoft for Bing? Just because you have patents doesn't mean you have to use them so aggressively. At least Google has tried doing that until Apple started making patent lawsuits popular.

Can you imagine what would happen if Google sued Microsoft for Bing? Just because you have patents doesn't mean you have to use them so aggressively. At least Google has tried doing that until Apple started making patent lawsuits popular.

What would happen is that Google would be counter-sued, and might end-up on the wrong side of a patent beat-down. A whole lot of software companies make products which infringe on either Microsoft's, Apple's, Sun/Orcale's, or IBMs patents.

They don't sue each other for fear of mutual destruction. Google has a much smaller patent portfolio than some of the older tech companies, so would have a harder time defending itself (which is why it spent a lot of money buying Mot and why they wanted the Nortel patents, rather than bidding with the Microsoft, RIM, Apple, etc consortium).

The "beauty" of the patent troll business model is that since they don't make anything, it's guaranteed that you can't counter-sue them.

Lycos? There's a name I hadn't seen in a really, really long time. It's interesting to see that they still have a web site - sort of - and mail, and aggregated news, and user generated web pages. (Tripod, now Zeeblio? Huh.) It's fair to characterize them as an "early search competitor," but they were once quite a bit more. They had a customizable landing page/portal facility that actually wasn't too bad - I used to use it some (and even had a lycos.com e-mail address for some years). It was a bit like My Yahoo!, mail and all, and might actually have preceded Yahoo! by a bit on some fronts, though I could be wrong about that - same era, very similar services. Yahoo! obviously outran them. But I digress, and that's off-topic, mostly.

Vringo seems to have made a rather weak case here - a bit amateurish, even, based on the Middle School civics class quality of the materials shown here. Of course, they (allegedly) do ringtones, so this may not be their strong suit. Precedent or not, the serious payoff reduction doesn't bode well for their strategy.

Did anyone else notice that what they are doing is completely at odds with the quote from the Constitution they used?

Part of their quote is: "To promote the advancement of science and the useful arts...", and yet their actions and goals are very clearly opposed to promoting the advancement of anything even remotely useful. They're out to make a buck off someone else's unimplemented ideas, and I have a very hard time believing that falls into the original intent of IP law.

If I was a judge/jury and Vringo whipped out that slide pulling the language from the constitution on patents I would have jumped up and stopped them.

Me - "Whoa, whoa, whoa. So you agree with this slide 100% completely?"Them - "Uh...yeah."Me - "Great. I don't see how an entity that is not practicing in the area of the patent is progress science of the useful arts, especially as the patent was not organically developed. Case dismissed with predjudice. Next please!"

If I was a judge/jury and Vringo whipped out that slide pulling the language from the constitution on patents I would have jumped up and stopped them.

Me - "Whoa, whoa, whoa. So you agree with this slide 100% completely?"Them - "Uh...yeah."Me - "Great. I don't see how an entity that is not practicing in the area of the patent is progress science of the useful arts, especially as the patent was not organically developed. Case dismissed with predjudice. Next please!"

I would take a different angle. I would fixate on the "progress" part of that clause.

You can only sue if there's a valid case. 'Search' is not a valid patent, how you search and rank is, which is where Google has their patent hoard. And if Microsoft is using a different methodology, then Google has no case to sue them.

lucianarmasu wrote:

Just because you have patents doesn't mean you have to use them so aggressively.

Whats the point of having the patent in the first place then? Spend lots and lots of money developing something clever, lots more money putting the patent together, then let other companies steal it. Not really a valid business case. And what determines 'aggressively' in this case? If someone puts forward a single claim then it could be considered aggressive.

Do you think that if DogPile or some other search engine started using the ranking algorithms or advertising mechanisms that Google has patented that Google would sit back and let it happen? Search and advertising IS Google's bread-and-butter, they're sure as hell not going to let it go.

lucianarmasu wrote:

At least Google has tried doing that until Apple started making patent lawsuits popular.

A fair number of Google's patents are in areas that don't overlap Apple's products (search, network scalability, email checking etc. see here : http://www.arnoldit.com/lists/google-patents.asp). There is a reason why Google bought Motorola, and it wasn't for their products. They needed the patents that Motorola holds in the mobile area to 'defend' against competitors, including Apple, Microsoft, RIM et. al.

Did anyone else notice that what they are doing is completely at odds with the quote from the Constitution they used?

Part of their quote is: "To promote the advancement of science and the useful arts...", and yet their actions and goals are very clearly opposed to promoting the advancement of anything even remotely useful. They're out to make a buck off someone else's unimplemented ideas, and I have a very hard time believing that falls into the original intent of IP law.

I think, generally, preambles are not considered to be part of the execution portion of the law. Similar to how "a well regulated militia, being necessary to a free state" doesn't mean that a militia is the only valid purpose for bearing arms.

Just because you have patents doesn't mean you have to use them so aggressively.

Whats the point of having the patent in the first place then? Spend lots and lots of money developing something clever, lots more money putting the patent together, then let other companies steal it.

Most would argue that a lot of these patents didn't require a lot of money to develop and put together, and filing a patent application is not an expensive endeavor.

I don't think anyone is arguing that patents in and of themselves are wrong, just that seemingly obvious or commonly used things are often patented, then used as money printing machines via the court system.

According to a report just published in the Virginian-Pilot, the jury found that Google will have to pay $15.9 million. Its advertising partners must pay smaller amounts: $7.9 million in damages for AOL, $6.6 million for IAC Search & Media, $98,800 for Target, and $4,000 for Gannett. The jury also said Google should pay an ongoing royalty; but whether that ultimately sticks is up to the judge.

If I'm reading this correctly, Target and Gannet have to pay for using adwords? WTF?

So, how long until you can trade in patents the same way we trade in stocks and bonds? Buy into a patent troll, or consortium if you like, and when it wins a court case, you make money, and when it loses, you lose money. Seems the logical next step to me, not to mention dividends from royalty payments, I mean, if we’re going to continue to have a broken patent system, why not abuse it until even Congress and the Supreme Court are both wincing in pain at the inhumanity of it all?

Did anyone else notice that what they are doing is completely at odds with the quote from the Constitution they used?

Part of their quote is: "To promote the advancement of science and the useful arts...", and yet their actions and goals are very clearly opposed to promoting the advancement of anything even remotely useful. They're out to make a buck off someone else's unimplemented ideas, and I have a very hard time believing that falls into the original intent of IP law.

The Constitution defines and limits the powers of the federal government (and, to some extent, state governments). It does not regulate individual (or corporate) behavior.

The 'Promote the Progress" clause is one of several specific grants of power to Congress. It says, in intentionally vague and general terms, that Congress has the power to enact laws intended to promote progress in the "useful arts" by granting inventors temporary monopolies. (Keep in mind that without that clause, Congress could have used their power to regulate interstate commerce to grant permanent monopolies like they did with trademarks.)

There is no constitutional requirement that Congress enact a system that works perfectly, or a system that promotes progress in any particular way - just because you or I might think there is a better way, there's still a non-laughable argument that the system does it's job as is. The Constitution doesn't draw those lines, it's left to Congress to decide the best way to implement the system and figure the details.

So, how long until you can trade in patents the same way we trade in stocks and bonds? Buy into a patent troll, or consortium if you like, and when it wins a court case, you make money, and when it loses, you lose money. Seems the logical next step to me, not to mention dividends from royalty payments, I mean, if we’re going to continue to have a broken patent system, why not abuse it until even Congress and the Supreme Court are both wincing in pain at the inhumanity of it all?

Can any one enlighten meI know nothing about law and not even from US, but I thought in criminal court, preponderance of the evidence is not enough, one has to prove beyond reasonable doubt to find someone guilty. So how come civil courts like this only require more than half chance? I think such a system is retarded. 51% chance of being guilty mean evidence is insufficient either way!

So, how long until you can trade in patents the same way we trade in stocks and bonds? Buy into a patent troll, or consortium if you like, and when it wins a court case, you make money, and when it loses, you lose money. Seems the logical next step to me, not to mention dividends from royalty payments, I mean, if we’re going to continue to have a broken patent system, why not abuse it until even Congress and the Supreme Court are both wincing in pain at the inhumanity of it all?

Did you read the article? That's pretty much how it works now.

Read the article and was “inspired” by it. This is one isolated case, how long until it is much more common, and patent mutual funds and holding companies are something any speculator can trade in with a platform like E-Trade or similar?

This worked out because Vringo actually had a genuine business it *tried* and failed to make work, and decided patent trolling brought in more money, so it has a listing on the stock market. That isn’t very common for patent trolls.

Can any one enlighten meI know nothing about law and not even from US, but I thought in criminal court, preponderance of the evidence is not enough, one has to prove beyond reasonable doubt to find someone guilty. So how come civil courts like this only require more than half chance? I think such a system is retarded. 51% chance of being guilty mean evidence is insufficient either way!

The standard for awarding money from one party to another for damages caused is lower than the standard for depriving somebody of their essential liberty by putting them in prison.

This should not be shocking.

Quote:

Part of their quote is: "To promote the advancement of science and the useful arts...", and yet their actions and goals are very clearly opposed to promoting the advancement of anything even remotely useful. They're out to make a buck off someone else's unimplemented ideas, and I have a very hard time believing that falls into the original intent of IP law.

Forget that this is a software patent for a moment, because I think most of us can agree that those tend to be questionable.

But otherwise, assuming the patent was legitimate, what this does is encourage the development of new technologies by giving them monetary value, even if the inventor may not be able to bring them to market (note that successfully bringing it to market may not be required for an initial "implementation"). By snatching up patents then achieving a return on investment by exercising them, the patent troll both rewards the original patent holder (by purchasing it) and encourages further the generation of new patentable ideas (by providing an alternate means of monetizing them).

The biggest issue is ensuring that whatever licensing fees they're extracting for further use of the patent are reasonable, and don't prevent using and building upon the technology.

Lycos? There's a name I hadn't seen in a really, really long time. It's interesting to see that they still have a web site - sort of - and mail, and aggregated news, and user generated web pages. (Tripod, now Zeeblio? Huh.) It's fair to characterize them as an "early search competitor," but they were once quite a bit more. They had a customizable landing page/portal facility that actually wasn't too bad - I used to use it some (and even had a lycos.com e-mail address for some years). It was a bit like My Yahoo!, mail and all, and might actually have preceded Yahoo! by a bit on some fronts, though I could be wrong about that - same era, very similar services. Yahoo! obviously outran them. But I digress, and that's off-topic, mostly.

Vringo seems to have made a rather weak case here - a bit amateurish, even, based on the Middle School civics class quality of the materials shown here. Of course, they (allegedly) do ringtones, so this may not be their strong suit. Precedent or not, the serious payoff reduction doesn't bode well for their strategy.

Yeah, if I remember correctly, they were sort of the third-string portal at one point, behind Yahoo and Excite. I think they got bought by some Latin American conglomerate that wasn't in the tech industry and sort of faded away after that.

But back in the early 90s, they were one of the first two search engines, along with Webcrawler. (Yahoo was a a hierarchical set of listings by topic at that point, not a true search engine.) I can't remember which of the two was first, but Lycos pretty much predated every search engine anyone remembers. In the grand scheme of things, that's probably more significant than being an also-ran portal.

The jury wasn't convinced Vringo's patents were worth anywhere near a half-billion dollars, either. Dan Ravicher, a patent law professor and investor who has followed the case, said that Vringo's arguments just weren't that compelling. (Ravicher took a short position in Vringo stock mid-trial; in other words, he has bet that Vringo's stock price will drop.)

That seems incredibly sketchy. Is it a coincidence he might influence the share price by saying that?

Hidden away amongst the hyperbole and sarcasm, there are a disturbing number of inaccuracies and omissions in this "article."

Most glaringly:

Quote:

Vringo bought two patents, Nos. 6,314,420 and 6,775,664, that originated at Lycos, an early search competitor. It set those patents up in a shell company called I/P Engine and sued Google last year.

Um, no. Or at least there is a lot of publically available material, some of which is actually linked to in the article, that contradicts those statements. The patents originated at WiseWords, a company owned by Ken Lang, the inventor of the patents. WiseWords was bought by Lycos, making Ken Lang CTO in the process. When Lycos started cirling the drain, it sold the patents ... back to Ken Lang, who founded I/P Engine. I/P Engine brought the suit against Google. Vringo didn't enter the picture until it merged/bought I/P Engine in July of this year, almost a year after the suit started. Oh and Ken Lang is now president and CTO of Vringo. [edit: I had no knowledge of any of this prior to reading the article - it took me about a half hour of poking around on the internet to figure it all out.]

With that in mind, if you're going to set-off any particular word or phrases in the sentence:

Quote:

Google got crazy rich using the smarter advertising system—the system described by the Lycos patents, which are now Vringo's "property."

It should probably be "crazy rich" (Really Ars? Really?) and not "property."

I also don't understand why patents that issued in 2001 and 2004 are being called "old."

If I was a judge/jury and Vringo whipped out that slide pulling the language from the constitution on patents I would have jumped up and stopped them.

Me - "Whoa, whoa, whoa. So you agree with this slide 100% completely?"Them - "Uh...yeah."Me - "Great. I don't see how an entity that is not practicing in the area of the patent is progress science of the useful arts, especially as the patent was not organically developed. Case dismissed with predjudice. Next please!"

Patents were created to protect the company and allow them to profit from their "research" prior to fair use from its competitors. The fact that the US Govt has extended the duration for patent/IP claims indicates that Vringo is following in the steps of the govt (unless the US govt is itself infringing on the Constitution)

Did anyone else notice that what they are doing is completely at odds with the quote from the Constitution they used?

Part of their quote is: "To promote the advancement of science and the useful arts...", and yet their actions and goals are very clearly opposed to promoting the advancement of anything even remotely useful. They're out to make a buck off someone else's unimplemented ideas, and I have a very hard time believing that falls into the original intent of IP law.

I think, generally, preambles are not considered to be part of the execution portion of the law. Similar to how "a well regulated militia, being necessary to a free state" doesn't mean that a militia is the only valid purpose for bearing arms.

I'm sure you do think that, but that idea is far from settled in law. There is, in fact, no logical reason to simple discard half of a sentence in order justify a particular piece of legislation, except as a convenient fallacy.

Did anyone else notice that what they are doing is completely at odds with the quote from the Constitution they used?

Part of their quote is: "To promote the advancement of science and the useful arts...", and yet their actions and goals are very clearly opposed to promoting the advancement of anything even remotely useful. They're out to make a buck off someone else's unimplemented ideas, and I have a very hard time believing that falls into the original intent of IP law.

I think, generally, preambles are not considered to be part of the execution portion of the law. Similar to how "a well regulated militia, being necessary to a free state" doesn't mean that a militia is the only valid purpose for bearing arms.

I'm sure you do think that, but that idea is far from settled in law. There is, in fact, no logical reason to simple discard half of a sentence in order justify a particular piece of legislation, except as a convenient fallacy.

Yeah, absolutely. It's completely the opposite -- it's actively presumed that all of the words in the section were put in there for a reason. Why would you talk about militias being necessary if they weren't necessary and it wasn't important?